Article (Journal/Review)
Learning-by-employing: the value of commitment under uncertainty
Fecha
2016-07Registro en:
0734-306X
10.1086/684852
000378091200002
Autor
Camargo, Bráz Ministério de
Pastorino, Elena
Institución
Resumen
We analyze commitment to employment in an environment in which an infinitely lived firm faces a sequence of finitely lived workers who differ in their ability. A worker's ability is initially unknown, and a worker's effort affects how informative about ability the worker's performance is. We show that equilibria display commitment to employment only when effort has a delayed impact on output. In this case, insurance against early termination encourages workers to exert effort, thus allowing the firm to better identify workers' ability. Our results help explain the use of probationary appointments in environments in which workers' ability is uncertain.